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Production Tax Credit Extended

By Sarah A. WebsterEditor in Chief

The renewable energy industry kicked off the New Year with celebration after Congress passed the American Taxpayer Relief Act of 2012 in the first days of 2013. The law averted a tumble over a fiscal cliff of automatic spending cuts and also extended the popular tax credits that had been set to expire.

The federal renewable electricity production tax credit (PTC) is a per-kilowatt-hour tax credit for electricity generated by qualified energy resources. While wind and ethanol producers are the big winners in the move, the PTC also covers other sources of power generation such as specific types of landfill gas, biomass, hydroelectric, geothermal electric, municipal solid waste and others.

The green energy sector has been clamoring for more stability in its support from policymakers, after being whipsawed by the PTC since it was originally enacted in 1992. The PTC has been allowed to expire multiple times, including in 1999, 2001 and 2003. And while it has always been reinstated for one- or two-year terms, the off years typically cause industry jobs and investment to plummet. It has also caused manufacturers to treat this area with caution.

The PTC was most recently renewed by the American Recovery and Reinvestment Act of 2009, the stimulus bill passed during the depths of the US recession.

Keeping the PTC alive has also been increasingly important, experts have said, because the oil and gas boom in North America has been driving down energy prices and the incentive to develop renewable sources of energy.

The extension was heralded by those working to develop renewable energy sources.

“America’s 75,000 workers in wind energy are celebrating,” the American Wind Energy Association (AWEA) said in a statement issued Jan. 1. “The extension of the wind energy Production Tax Credit (PTC), and Investment Tax Credits for community and offshore projects, will allow continued growth of the energy source that installed the most new electrical generating capacity in America last year, with factories or wind farms in all 50 states.” AWEA said that as many as 37,000 jobs were in immediate jeopardy if the PTC was not renewed.

The American Council On Renewable Energy (ACORE) also applauded the PTC extension, saying it gave the market more certainty. It further complimented language in the law that allows renewable energy projects that “start construction” as opposed to being “in service” in 2013 to claim the PTC. ACORE said the effective change in deadline is critical to the wind industry, as well as the hydropower, geothermal, biomass and waste-to-energy industries as it takes into account the long-term time horizons required to complete projects.

And although the PTC extension was a significant accomplishment, ACORE said it believes there is much left to be done in 2013 to ensure the renewable energy industry continues to drive declining down costs, expand market opportunities, gain greater access to low cost capital, and obtains the opportunity to compete with all energy sources on a level playing field.

AWEA, for example, notes that “many subsidies for new, clean energy technologies are temporary, while many for older, polluting energy technologies are permanent.”

While the PTC extension brought some relief to the sector, the very threat of the expiration had already begun to have a chilling effect on the industry. It’s unclear whether its renewal will cause an immediate ramp up of demand. AWEA noted that layoffs had already begun, as companies idled factories because of a lack of orders for 2013.

Indeed, Siemens Energy Inc., which makes wind turbine blades and other equipment, laid off 615 workers in Iowa, Kansas, and Florida in September in part because Congress had not renewed the tax credit, the Associated Press reported. While it said the renewal of the PTC was a step in the right direction, many customers had ramped up wind farm projects in 2012 in case the PTC wasn’t extended. That could have eaten into demand for 2013.

“We are currently evaluating the potential impact the extension will have in the short term,” Siemens Energy spokeswoman Melanie Forbrick said in a statement.

With the race to build wind farms before the expiration of the PTC, wind set a new record in 2012 by installing 44% of all new electrical generating capacity in America, according to the Energy Information Administration, leading the electric sector compared with 30% for natural gas, and lesser amounts for coal and other sources.